Too good be true

Slightly different subject matter today. I’m not a news reported or a champion on the downtrodden. However, this story outline some useful concepts of arbitrage, borrowing and lending rates and how not to build a brand, market your company or do business.

First let me say that I don’t know all the details, and I can’t advise anybody on the basis of what I know, but I can say that I won’t be financing anything from Rudco.

Here are some facts:

Rate unrealistically low

What they’re offering is a fixed-rate homeloan at 6% in South Africa. According to the South African Reserve Bank prime is currently at 13%. ABSA, First National Bank, Standard Bank and Nedbank all have 13% as their prime rate. Home loans to the very best risks are rarely offered at less than Prime – 2%. Currently, that lower limit stands at 11% – and this is a flexible rate so the bank doesn’t have to hedge the risk of changes in interest rates. ABSA has a useful guide. SA HomeLoans have attractive deals, but nowhere at the same level as Rudco purports to.
It doesn’t require an actuarial model to figure out that Rudco is offering something that sounds too good to be true.

Website oddities and strange business practices

For a business that has already begun wooing customers, not even having a working “www.rudco.co.za” website is odd. The site was only registered in February this year. At least it has been paid up. Afewothersites with more information exist under various names but seem definitely to be connected with Rudco. Interesting that they are displaying adverts by Google – to raise a little extra cash perhaps? Or maybe to fund the 6% rate offered? If the adverts on my homeloan-offering-site were advertising FNB Home Loans (it was when I visited the site) I’d be a bit concerned.

One of the affiliated sites hasn’t paid their domain registration fees. Call me old-fashioned, but I prefer to deal with financial services companies who pay their bills on time, and who deal with other companies who pay their bills on time.

Moneyweb, with a record of calling bad apples bad apples had some things to say that should be read. This wouldn’t be the first time they had highlighted some dubious dealings in the early stages to be proved right after a lot more crying than was ever necessary.

Arbitrage on this scale is a whopper of a warning bell

Credit to Moneyweb for raising this, but I think it deserves highlighting. The investors into Rudco are prepared to lend money at lower than SA government risk-free bond rates. This means two things:

As a borrower, you could borrow as much money as you could from Rudco and invest it in Government bonds to make a profit at about to close to no risk as can be imagined. The South African government would need to default on a local currency obligations.

The investors placing their money into Rudco could, with lower expenses, less effort, less risk and more liquidity achieve higher returns (and yes, higher risk-adjusted returns too) by purchasing South African bonds.

These scenarios are a “free lunch” or arbitrage opportunity. Nobody makes money by being on the wrong end of an arbitrage opportunity. SA HomeLoans, who have attractive rates depending on particular circumstances, tie their funding directly to the rates available in the market. Almost by definition they are providing no-arbitrage pricing (provided one appropriately values the “service” or lending money retail, repackaging and effectively borrowing at wholesale rates). The larger banks may be slightly on the receiving end of an arbitrage opportunity (which is partly the reason for the existence of SA HomeLoans in the first place.) However, the banks have different cost structures and different distribution approaches, which offsets some of the superficially apparent economic profits.

The end game

I don’t have all the info, but everything I’ve seen makes suggests that Rudco are worthwhile staying away from. I’ll wait for the tears to start. Let’s stay away from Tigon and Masterbond and Fidentia and the myriad other schemes that South Africans have been conned into over the last few decades. Let’s apply some critical thinking, some logic and a clear and cold reality-check.
Well done Alec Hogg and Moneyweb for spotting this one and drawing my attention to it.

34 Replies to “Too good be true”

Thanks for publishing this article. I enjoyed reading it, i am just thinking of how many sheep like people there are out there. It is clear that this Rudco Company has some dubious business partners. No one in there right mind with lend money at a rate lower than the risk free rate? There is absolutely no logical reason for this, even if it is a loss leader – it still does not make sense. People seem to be blinded by the fact that the money is coming from abroad. Even so, the currency risk is of great concern, and no one can predict or even think to predict what the currency will do from 20 years from now.

Thanks Wayne. A couple of people have said “why not borrow the money, what’s the worst that could happen?” and it is a fair question. Apart from the old adage “if it seems too good to be true” there’s the other element of the first repayments made before the loan is granted – what is that all about?

As I said, I’m not an investigative journalist! As you highlighted in your comment, there are several important considerations around risk and return that are worthwhile understanding.

I spent the whole night last night trying to figure out what the game plan is for this company. My instincts tell me that there is something wrong. Here is my take (please note that this is my opinion and is not founded on any factual evidence – the figures I have used are the ones published in the newspapers).
They are apparently only going to issue 1000 bonds, ok let’s do some numbers. (if this were a scam, how much money could they be making?)
Initiation fee = R5700
Monthly Admin Fee = R57
Hypothetically they issue on average a R1 000 000 million bond.
Monthly PMT = R7172.70.
Commission = 10% of monthly PMT to the bond originator

So they are saying that they will only finance bond switches.
So every person that signs up will in fact be subjected to the 3 months cancellation of their current bond.

After three months here is what they could possibly make:
(R5700 * 1000) + (57 * 3 * 1000) + (7172.70 * 3 * 1000) -(0.1 * 7172.70 * 1000)
= R 26 671 830 in three months before they have to pay out 1 cent. What’s to stop them from taking this money disappearing?

Great stuff, Wayne. Haven’t had a chance to check the figures, but it tells the story a few people have been talking about. See my new post updating the story – Rudco are going to be probed by the NCR. Remember, they only have a “temporary licence” so I imagine they have some sleepless nights ahead of themselves.

I am a licensed bond originator, owning and operating a national network of agents. Been in the financial trade for about 15 years. I cancelled my contract agreement with Rudco this week,after only 2 months…. today is the 27th of July, and I have slept better for the last 4 days, since I have done so. I have intimate knowledge of Rudco’s inner circle, and operations, and I wish to confirm that something big is about to happen. These guys are not on the up and up. I worked abroad for HSBC Bank also for a number of years, and came back to SA because I love my country, but people like Rudy Visagie make me sick. He is using his free publicity to draw people into his company because they have no where else to turn. I have already had many tears in my office, and seen many tears from people being offered the Rudco promise, without delivery, and I want to make sure that everybody understands the caution in my heart about this company. At the moment it sounds like Rudy is overseas looking for investors, may the good Lord help them, and Rudy, and everybody who has already bought into the business.

I heard about Rudco through word of mouth. I contacted Rudcothem and left numerous messages for them to contact me regarding Bond Switching. They never contacted me. I then went a step further and emailed them, requesting them to provide answers to basic simple questions like how are they able to provide their clients with a 6% interest rate? Who are their investors? How are they able to provide finance? If I do bond switch to Rudco will my bank provide them with a guarantee to ensure such bond switch? I never received a response. I thought that they maybe never received my email, so I telefaxed my queries to Rudco’s head office in Cape Town. I never received a response. I only realised after all my effort that the reason why I did not get a response is that in my original email to them I forgot to delete my email signature which says “Senior Attorney”. My query was simple and Rudco knowing that they would be caught out refused to respond.

I was almost a sucker (had I not been swindled by a fraudster named Colin Meads Rall last year, I would not be as savvy as I am now). There’s this guy advertising on Gumtree: Charlene Gracey West Coast Agent Principal Tel: 082 56 77 997…
But I got a reply from a (guy not a girl) with a free mailbox email account. He refused to give me any contact details other than his cell. Go figure. Also he caled himself “RudcoSA”. Maybe when he’s scammed enough people he can afford to have his own website too.
I think somebody should take these people down.

[unchanged from original submission out of respect to the comment-writer. However, check out Moneyweb’s story for a slightly different take on the matter. You know by now my thoughts on this, but if a company can’t comply with basic regulations, and has their advertising approach forcibly changed, and has agents who are apparently not sufficiently trained… From this perspective the whole “repay loan before you receive the capital” seems like just the tip off the iceberg. DK]

I work for Rudco Finance Company and would like to clear some things up for you.
The investigation regarding the NCB and Rudco is concluded and finalized with some changes.

1. R5700 admin fee is still to be charged
2. First installment will only be paid after registration or switch of a bond or after debts been paid in full with proof.
3. The company is profided with proved investigation papers from the credit Bureau and we are still in operation.

Let me tell you something – all new companies has to go through sertain criteria and mistakes to learn from them. I have been an sub-agent for a new branch, working for a period of 3 months. There are alot of heart in this company and I saw them literally saving people from losing their homes and lifes. I think it is to commonly of SA to break down and suggest the worse if you don’t have all the right facts.

I think that Rudco is taking quite a bit out of the market for the other financial institutions and they are going to feel it in a very short time.

Negative publicity is not going to be enough to stop this man, Rudi Visagie, to reach his dream. I apploud him for what he is doing for people in need and I apploud him for sticking with it even through the bad publicity.

I hope that SA will soon realize that this is a man with seriously revolutanary plans and that they will stand behind him.

Maybe everything is not going according to plan, BUT LIFE DOES THROUGH CURVE BALLS.

Well done Rudi, I really hope that you can show SA what the other financial institutions has been taken from us all along.

I am glad to see we have someone here that works for Rudco. Just maybe run a spellchecker before you try to make a point? It would be nice if what you are saying is true, but the fact that there are so many questions and so little answers raises even more questions. I would suggest that Rudco makes a statement at least to the public backed by the NCR to give them creditability?

I cut ties with Rudco more than 2 months ago after some very upsetting information reached my ears. In my dealings with this man, allot was also left to be said about their operating procedures, because they never let us know of anything and everything kept on changing constantly, it’s as if they sometime do not exist. Now I have received information directly from the NCR concerning everything, and believe me they are in trouble, big trouble. Please… to one and all, stay away from them, if Rudi wanted attention, he got it. Lot’s of people that know him told me he suffers from a really bad self image, and is always trying to be a boss, and this is true. I experienced him as a very bossy and evasive man. If he has a good company, then the law has to say it is so. Otherwise for now, even the NCR has order them to stop doing business, and there are already instances where Rudco has to pay back money to people. Rudco also imformed all their agents, simply that they do not grant any loans and cannot work on any further applications for an undisclosed time. I have in my possession the full finding document from the ncr, because the NCR did not trust that Rudco would inform all their agents of the findings and immediate instructions given by the regulator. Now that should make you think and act accordingly. STAY AWAY.

who cares about what people have to say about Rudco because its all the people who are not in debt that have a fat lot to say!

Sometimes due to unforseen circumstances people fall into debt and our banks dont want to help them out of their situations …
so give these people a break because they are only looking for a way out of their situations..

if you think you will always be financially stable think again.

u dont know when the Sh*t wil hit the fan and then you wil be faced with the same situation that millions of south africans are faced with then id love to see where u turn to!

i hope Rudco wil be able to make our banks wake up and realize that they can try to help people in need..

Why are we accepting Car deals by various manufacturers at Prime less 6% ( with a star for conditions apply in small letters) and not for the home loan market. These deals are available for a long period of time, and no one in the media raised any concern. These companies are carrying the differential cost as a marketing expense. Maybe Rudco is following this strategy to get a big loan book in the beginning, apply for a banking license and then hike the offers. Personally, I am willing to risk the original 5700R, which would be paid back from the savings in the first installment. If Rudco are fake, then I ‘ll consider myself a negligent investor, but if it works….Payback period One Month.

Rudco was found to be in contravention of the NCA in numerous areas. The NCR gave Rudco strict instructions about what to do, and Rudco CEO Rudi Visagie made all the right noises. One of the things the NCR insisted on is that all Rudco clients who had paid instalments but not received loans, be paid back by October 31.

Today is the 31 October and Rudco has not paid me back a cent, despite numerous calls, e-mails, faxes and a personal visit. I have notified the NCR about this. (info@ncr.org.za)

Rudco is bad news through and through and I feel sorry for employees who cannot see through all the nonsense.

The 6% below prime commparison against a car loan is interesting, but differs in several respects.

Firstly, this discounted financing rate is usually directly financed by the car distributors – the banks certainly aren’t absorbing that cost.

Secondly, there is another (slightly sneaky) reason to do this. If new car prices are lowered through a direct discount on the sticker price, then the second hand car market gets into trouble since these cars are always priced at a heavy discount to new cars. Reduction in value of vehicles in the second hand car market reduces the attractiveness of the new cars, resulting in lower sales. Thus, it is in the interest of those selling cars to not discount the sticker price, but rather find innovative ways of achieving the same end. Rudco is not building and selling houses – there is no where else for them to (legally) earn a return.

Thirdly, consider the difference in repayment for a R100,000 loan over 5 years versus over 25 years at 11% versus 6%. 14% lower for the 5 year loan, but 52% lower for the 25 year loan. A far larger portion of the repayment on a 5-year loan is capital rather than interest.

Finally, the 6% is a guaranteed rate. Most car loans (certainly in South Africa) are variable. Thus, the risk of rates rising does not exist for car loans but does for home loans.

So, the 6% below prime motor deals are interesting in their own right as a market-management tool. However, the principles are fundamentally different from the hocus pocus Rudco is attempting.

It’s also worth pointing out that Rudco was requiring repayments before the loan was granted. This was one of the items they were required to change, but it certainly raises the stakes well above the R5,700 admin fee.

Did you guys know that Rudco is now a formal investigative toppic with the Scorpions because Rudi Visagie failed to repay all the monthly installments they took outside the credit law of the land. The NCR ordered them to do this, also, all of the sudden they are not in the same offices anymore. Why is it, that in a country where Adrian Niewoudt x 100, still does not help people to learn from the past. This guy is using free publicity to further his dealings. He is still advertizing like wildfire in some areas. Stop playing with figures and trying to sound intellegent and start acting against this guy.

It’s now been fairly widely reported in the press that Rudco has in fact failed to repay installments accepted from clients before loans were granted.

At what point does this become a joke? I think it’s clear that Rudco (specifically, Rudi and co) have run out of due process and have shown no interest in abiding by the NCR’s rules and instructions.

I was reading on another foru,m about Rudco recently. Zulu, whoever you are, I sincerely hope you are eating your hait, assegai and whatever else you have on hand because your predictions now reflect the accuracy of your logic and limited understanding of finance.

If as you say, the total 1000 bonds equate to 1,000,000,000 and there fire sale value on the open market is 2,500,000,000 what would happen if Rudco went under.
What would happen to the mortage bonds.
Who would buy them.
What would happen to the bond holders of Rudco.
if I see a risk to the desperate investor whom has no were to go because of the Reservse banks blikered decisions, why has Trevor stepped in.?

Bad press, NCR rulings despite, Rudco and it’s agents are pushing like hell to sell this product. They all claim everything is sorted out and that you no longer pay any upfront installments. Other than the R5,700 fee of course which, by the way, you can finance over three months.

The con here is that they say it takes 5 months to switch. What they don’t tell you is that you can kiss your R5,700 goodbye, whatever the outcome of your application. It is purely a facilitation fee.

What they also don’t tell you, is that not a single bond has been taken over yet.

Therefore… zero track record.

Except that Mr V himself has a ruling against him for not paying his personal debt.

Basic truth is, Rudco does not have the finance to extend these loans. If they did, Mr V has no reason to be so secretive does he now.

However, they are raking in the R5,700 facilitation fees though.

If it turns out that all is above boaerd, I’d be the first to jump in and refinance my home.

Rudco made a presentation to police officers – at a police station – anout the mortgage loans. If this is not a good deal, why is the SAPS allowing them to speak to an already stretched staff. Surely someone must be cautioning the public. Lets hear what the publif protector has to say.

Rudco gives us consoldation money to repay our accounts and after 3 months they did not pay our 3 months instalments what we already pay rudco, they don’t gives us reply on it. We want to know why and when rudco going to pay us back!

I was one of the victims Rudco took money for the debt consilidations. To date they still not refunded me of almost R7000.00 . Rudi was suppose to refund our money End Of oct and then another dead-line was given 22NOV07. To date nothing yet.
I advise that no-one should do business with Rudco.
This guy Rudi should be jailed for a long period and should be stripped from everthing he owns.

I am one of the suckers conned by Rudco….and I am still waiting for my money to be refunded to me. The staff are absolutely useless and their stories are forever changing.
I get updates from NCR and the last was that Rudco received a court order to refund everyone by 12 Monday, 26/11 – no surprise but I never received a cent. Whats the next step?

I am not convinced that by tranferring my R1000 000 bond to Rudco i stand to loose,Why? because we must remember that rudco is buying our debt book from other big banks,it is a balance sheet concern, rudco says guys let us buy your bond loan from the current bond holding bank.question is, if rudco liquidate, how do you stand to loose, I say nothing,why-because two thing will take place:1] upon liquidation, rudco will sell its debt book to a willing buyer in this case any bank or 2] the total debt book owing to rudco by you will be written off, then who looses. I hear people talk about them investing which is a wrong approach, you are investing nothing because if you were to switch your proporty to any bank, you will be liable for the exact cost structure rudco proposes therefore we must remove the invetor mentality and ask WHO STAND TO LOOSE OR GAIN?